Dust build-up blamed for Foxconn plant blast

By Joseph Menn in San Francisco

An explosion at one of Apple’s main supplier’s factories that killed three workers and injured 15 last week could have started with a build-up of dust that combusted, according to an investigation by local authorities.

Foxconn, a subsidiary of Taiwan-based Hon Hai Precision, said dust had gathered in a section of a manufacturing facility, based in Chengdu, in southwestern China, that was used for polishing technology products such as the iPad 2.

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The plant, which opened last October, was to produce most of Apple’s second-generation iPad 2 tablet computers. The “facility is an important producer of the iPad 2 for Apple, as production was shifted from facilities in Shenzhen”, said Brian White, an analyst at Ticonderoga Securities.

But other analysts said over the weekend that they believed full production had not yet shifted to the Chengdu plant.

Local Chinese media said production could resume at the factory as early as this week.

Shares in Hon Hai dropped as much as 5 per cent in Taiwan trading on Monday as investors had their first chance to react to the news which emerged late on Friday. Foxconn International Holdings, a mobile technology unit of Hon Hai listed on the Hong Kong exchange, tumbled nearly 6 per cent.

Apple’s shares closed down 1.6 per cent in New York on Friday after news of the explosion emerged late in the US trading day.

Apple on Sunday declined to discuss iPad 2 production locations or when the Chengdu plant would go back on line.

Apple has enjoyed the lion’s share of the tablet market it pioneered, but its sales have been limited by inadequate supply in the past, especially after the iPad 2 launch. Apple last month said it was working through “the mother of all backlogs” for the devices.

Even a one-month delay at Chengdu would affect fewer than 1.3m units, reducing revenue by under $800m, less than 3 per cent of Apple’s expected sales for the quarter.

In a worst-case scenario, with production halted through June and Chengdu being the main supply point, revenue could fall by as much as $1.7bn, said Mike Abramsky, an analyst at RBC.

The explosion could highlight workplace safety issues at the Foxconn factory. Apple has come under fire previously for the conditions at Hon Hai and other suppliers. If the blast was caused by dust that inspections should have rooted out, that could become a focus of new criticism on Apple policies and Chinese government practices.